So, you’ve been searching for that perfect house to call a ‘home,’ and you finally found it! The price is right, and in such a competitive market, you want to make sure that you make a good offer so that you can guarantee that your dream of making this house yours comes true!
Freddie Mac covered “4 Tips for Making an Offer” in their Executive Perspective. Here are the 4 tips they covered along with some additional information for your consideration:
“While it’s not nearly as fun as house hunting, fully understanding your finances is critical in making an offer.”
This ‘tip’ or ‘step’ should really take place before you start your home search process.
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and will allow you to make your offer with the confidence of knowing that you have already been approved for a mortgage for that amount. You will also need to know if you are prepared to make any repairs that may need to be made to the house (ex: new roof, new furnace).
“Even though there are fewer investors, the inventory of homes for sale is also low and competition for housing continues to heat up in many parts of the country.”
The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a ‘normal’ market. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete with each other for their dream homes.
Make sure that as soon as you decide that you want to make an offer, you work with your agent to present it as soon as possible.
Freddie Mac offers this advice to help make your offer the strongest it can be:
“Your strongest offer will be comparable with other sales and listings in the neighborhood. A licensed real estate agent active in the neighborhoods you are considering will be instrumental in helping you put in a solid offer based on their experience and other key considerations such as recent sales of similar homes, the condition of the house and what you can afford.”
Talk with your agent to find out if there are any ways that you can make your offer stand out in this competitive market!
“It’s likely that you’ll get at least one counteroffer from the sellers so be prepared. The two things most likely to be negotiated are the selling price and closing date. Given that, you’ll be glad you did your homework first to understand how much you can afford.
Your agent will also be key in the negotiation process, giving you guidance on the counteroffer and making sure that the agreed-to contract terms are met.”
If your offer is approved, Freddie Mac urges you to “always get an independent home inspection, so you know the true condition of the home.” If the inspector uncovers undisclosed problems or issues, you can discuss any repairs that may need to be made with the seller, or cancel the contract.
Whether buying your first home or your fifth, having a local real estate professional who is an expert in their market on your side is your best bet to make sure the process goes smoothly. Let’s talk about how we can make your dreams of homeownership a reality!
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In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.
Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.
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Many people believe that selling their house during “the spring buyers’ market” is the best thing to do. Their reasoning is that there will be more buyers than there are during the winter months and, therefore, their house will sell quicker and for a higher price.
Historically, this made sense. However, today’s real estate market is not following the rules of the past.
The National Association of Realtors (NAR) measures buyer “foot traffic” each month. It receives data on the number of properties shown to a prospective purchaser by a Realtor® (based on the number of lockboxes used). The data reveals the number of buyers out actively looking for a home, not just window shopping on the internet. NAR explains:
“Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future.”
According to the latest Foot Traffic Report, buyer traffic is greater now than it was during this year’s spring market and there are more buyers out now than at any other time in the last five years (March of 2012).
The chart below shows that buyer activity over the last three months (blue bars) was greater than it was during this past spring market (green bars).
If you are waiting for next spring to list your home because you think that’s when the buyers will be out in force, perhaps you should reconsider. Buyers are out right now!
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According to CoreLogic’s latest Home Price Index, national home prices have appreciated by 7.0% from October 2016 to October 2017. This marks the second month in a row with a 7.0% year-over-year increase.
A lack of supply of homes for sale has led to upward pressure on home prices across the country, especially in areas where both existing and new home inventory have not kept up with buyer demand.
CoreLogic’s Chief Economist Frank Nothaft elaborated on the significance of such a large year-over-year gain,
“Single-family residential sales and prices continued to heat up in October. On a year-over-year basis, home prices grew in excess of 6 percent for four consecutive months ending in October, the longest such streak since June 2014.
This escalation in home prices reflects both the acute lack of supply and the strengthening economy.”
This is great news for homeowners who have gained over $13,000 in equity in their home over the last year! Those homeowners who had been on the fence as to whether or not to sell will be pleasantly surprised to find out that they now have an even larger profit to help cover a down payment on their dream home.
CoreLogic’s President & CEO Frank Martell had this to say,
“The acceleration in home prices is good news for both homeowners and the economy because it leads to higher home equity balances that support consumer spending and is a cushion against mortgage risk. However, for entry-level renters and first-time homebuyers, it leads to tougher affordability challenges.”
Any time the price of a home goes up there will likely be concern about the affordability of that home, but there is good news. Mortgage interest rates remain at historic lows, allowing buyers to enter the housing market and lock in a low monthly housing cost.
The report went on to mention that over the same 12-month period, median rental prices for a single-family home have also risen by 4.2%.
With rents and home prices rising at the same time, first-time buyers may find the task of saving for a down payment a little daunting. Low down payment programs are available and have been a very popular option for first-time buyers. The median down payment for first-time buyers in 2017 was only 5%!
If you are looking to enter the housing market, as either a buyer or a seller, let’s get together to go over exactly what’s going on in our neighborhood and discuss your options!
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Why is there so much paperwork mandated by the lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and requires three separate sources to validate each and every entry on the application form.
Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.
There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.
During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again.
Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.
The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate around 4%.
The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).
If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.
Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.
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Here are five reasons listing your home for sale this winter makes sense.
The latest Buyer Traffic Report from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing and able to purchase… and are in the market right now! More often than not, multiple buyers are competing with each other to buy a home.
Take advantage of the buyer activity currently in the market.
Housing inventory is still under the 6-month supply that is needed for a normal housing market. This means that, in the majority of the country, there are not enough homes for sale to satisfy the number of buyers in the market. This is good news for homeowners who have gained equity as their home values have increased. However, additional inventory could be coming to the market soon.
Historically, the average number of years a homeowner stayed in their home was six, but has hovered between nine and ten years since 2011. There is a pent-up desire for many homeowners to move, as they were unable to sell over the last few years because of a negative equity situation. As home values continue to appreciate, more and more homeowners will be given the freedom to move.
The choices buyers have will continue to increase. Don’t wait until this other inventory comes to market before you decide to sell.
Today’s competitive environment has forced buyers to do all they can to stand out from the crowd, including getting pre-approved for their mortgage financing. This makes the entire selling process much faster and much simpler as buyers know exactly what they can afford before home shopping. According to Ellie Mae’s latest Origination Insights Report, the time to close a loan has dropped to 44 days, after seeing a 12-month high of 48 days in January.
If your next move will be into a premium or luxury home, now is the time to move up! The inventory of homes for sale at these higher price ranges has forced these markets into a buyer’s market. This means that if you are planning on selling a starter or trade-up home, your home will sell quickly, AND you’ll be able to find a premium home to call your own!
Prices are projected to appreciate by 4.7% over the next year according to CoreLogic. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.
Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?
Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.
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There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.
However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase.
It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart 1).
According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes has been below six months for the last four years (see chart 2).
If buyer demand outpaces the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.
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There is a lot of discussion about the current state of housing affordability for both first-time and move-up buyers, and much of the narrative is tarnished with a negative slant. However, the truth is that housing affordability is better today than at almost any time in our history.
The naysayers are correct in the fact that affordability today is not as good as it has been over the last several years. But, we must remember that home prices collapsed during the housing crash, and distressed properties (foreclosures and short sales) kept home values depressed for years. When we compare affordability to the decades that proceeded the crash, a different story is revealed.
Here is a graph of the National Association of Realtors’ Housing Affordability Index. The higher the graph, the more affordable homes are.
We can see that affordability is better today than in the fifteen years prior to the boom and bust.
CoreLogic just published a report showing the National Homebuyers’ “Typical Mortgage Payment.” Here is a graph of their findings:
It reveals that, though a ‘typical’ housing payment was less expensive in 2012 (remember distressed properties), it is currently less expensive than it was in 2000 and is still projected to be lower next year than it was in 2000.
Mark Fleming, Chief Economist at First American, explained it best:
“While borrowing power for the potential home buyer has fallen relative to the low point of 2012, it remains high today and will remain high next year, relative to the long run average. If you don’t want to rent anymore and are considering becoming a homeowner, even if mortgage rates rise next year, your borrowing power will remain strong by historic standards.”
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According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.92%, which is still near record lows in comparison to recent history!
The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.
Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.
The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments between $1,850-$1,900 a month.
With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year.
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Owning a home has great financial benefits, yet many continue to rent! Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for as long as America has existed.
Zillow recently reported that:
“In reality, buying or renting a home is an intensely personal decision, with emotional and even financial considerations that go beyond whether to invest in this one (admittedly large) asset. Looking strictly at housing market numbers, there is a concrete point at which buying a home makes more financial sense than renting it.”
1. We recently highlighted the top 5 financial benefits of homeownership:
2. Studies have shown that a homeowner’s net worth is 44x greater than that of a renter.
3. Just a few months ago, we explained that a family that purchased an average-priced home at the beginning of 2017 could build more than $48,000 in family wealth over the next five years.
4. Some argue that renting eliminates the cost of taxes and home repairs, but every potential renter must realize that all the expenses the landlord incurs are already baked into the rent payment– along with a profit margin!!
Owning a home has always been, and will always be, better from a financial standpoint than renting.
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